This amazing dividend income stock just keeps on giving

I don’t own this dividend income stock but the recent interim results have got me scratching my head and wondering why!

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Young brown woman delighted with what she sees on her screen

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There’s a real gem of a dividend income stock in the FTSE 250 index and it’s called Telecom Plus (LSE: TEP).

It just seems to keep on giving for its shareholders. And today, 21 November 2023, the firm issued its half-year results report with the strapline: “Comfortably on track to double the size of our high-quality customer base.”

That sounds impressive. And it probably is knowing Telecom Plus. 

A consistent record

The company has an enviable track record. It owns and operates the Utility Warehouse brand and describes itself as the UK’s leading multiservice utility provider. That means it offers bundled household services, such as energy, broadband, mobile and insurance all through one customer account.  

People clearly like the service. Customers enjoy the convenience of a single monthly bill. And the firm also adds that they get “consistently good value across all their utilities and exceptional service levels”.

A big part of the business model is the way the service is marketed. And I’d say it’s a point of difference between Telecom Plus and its competitors. Customers sign up via a network of local ‘Utility Warehouse Partners’ all across the country. In other words, individual agents. 

Anyone can apply to become an agent. The set-up reminds me of the way popular direct marketing companies used to operate in the 60s, 70s and 80s, such as Tupperware, Amway, Kirby and many others.

In much the same way that those older firms operated, the partners at Telecom Plus recommend the firm’s services to friends, family and people they know by word of mouth. 

The system works. And the business has delivered uninterrupted growth in customer numbers “for every one of its 25+ years”. The directors think the firm’s record means there’s sustainable double-digit customer growth and earnings potential ahead. 

Good trading, weak share price

Meanwhile, the figures in today’s report are impressive. For the six months to 30 September, revenue rose by just over 57% year on year. And adjusted profit before tax moved around 36% higher.

The directors rewarded shareholders by slapping just under 6% on the interim dividend. And that adds to a dividend record that is a wonder to behold. Shareholder payment continued through the pandemic. And the compound annual growth rate of the dividend is running at a tempting-looking figure just under 10%.

But the share price has been sucked down with the general malaise in the market recently. And that situation has pushed up the dividend yield to well over 5% on a forward-looking basis for the trading year to March 2025.

As I write, the shares are changing hands at around 1,672p. But my guess is they’ll likely go higher as the next bull market unfolds for stocks.

However, there are risks for new shareholders. Perhaps the biggest being that the company surely relies on being able to offer good-value deals for its end customers. But the market is very competitive. And it’s possible that other companies could undercut prices in the future. 

That said, one of the advantages of the marketing set up at Telecom Plus is that it saves on costs. And, on balance, I’d think the company is well worth further and deeper research now with a view to considering it for a long-term diversified portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 20% in a month, should investors consider buying Marks & Spencer shares?

Shares in retailer Marks and Spencer have surged ahead over the last month, despite a cyberattack. Roland Head takes a…

Read more »

Charticle

Here are the latest growth and share price targets for Nvidia stock

Ben McPoland checks out the latest forecasts for Nvidia stock to assess whether it might be worth considering for a…

Read more »

Growth Shares

Yikes! This could be the most undervalued growth stock in the FTSE 100

Jon Smith flags up a growth stock with a low price-to-earnings ratio and a share price back at 2020 levels…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

3 beaten-down FTSE 250 shares to consider buying before the next bull market

Paul Summers thinks brave investors should ponder buying some of the FTSE 250s poor performers before they recover strongly.

Read more »

Investing Articles

Gold prices soar while the Fresnillo share price slumps. What gives?

With a gold bull market in full swing, this Fool argues that the falling Fresnillo share price may not remain…

Read more »

Investing Articles

2 FTSE 100 shares I’m avoiding like the plague right now

While the FTSE remains packed with opportunity, many of the index's blue-chip shares could be at risk as trade tariffs…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Here’s how an investor could aim for a million buying under 10 shares

Christopher Ruane explains why doing less, not more, of the right things could be the key to success as an…

Read more »

Investing Articles

Could this new risk cause a stock market crash?

Tariffs and a potential recession are two major stock market risks right now. But there’s another risk that concerns Edward…

Read more »